287. Assume that, on April 1, 2016, a customer visits MicrosoftStore.com and purchases
Microsoft Windows 7 Ultimate for $170. Windows 7 Ultimate comes in a DVD format which
the customer can use permanently, and Microsoft does not expect that its actions subsequent
to April 1, 2016 will affect the value the customer obtains from using the software.
Required: How much revenue should Microsoft recognize in 2016 with respect to this particular
transaction?
288. Smith & Sons is a CPA firm that provides proprietary software to its clients. One of its
software packages sells for $150 and contains pre-programmed tutorials on basic accounting
concepts. Another product sells for $3,000 and contains Smith & Sons’ archive of accounting
standards and articles, which Smith & Sons updates on a weekly basis and downloads to
archive users for the two years following purchase of the product.
Required: If a customer purchases both software packages on June 1, 2016, how much revenue
should Smith & Sons recognize for the year?
289. Berry Farm produces organic tomatoes and strawberries. In June 2016, it transported 100
boxes of strawberries with a price of $20 per box to the Bay Farmers’ Market. Berry Farm
paid an upfront fee of $100 to present its products at the market for one week, and the market
earns a 25% profit margin on each item sold, but Berry Farm is responsible for any items that
remain unsold at the end of the week.
Required: The market was able to sell 65 boxes of strawberries to customers. How much
revenue should Berry Farm recognize with respect to this transaction?
290. Holmgren Seafoods, Inc. catches and processes salmon and tuna caught off the coast of
Maine. In May 2016, it placed 100 freshly caught wild salmon with a retail price of $75 each
in Joe’s Fish Shop. Holmgren’s contract with the shop stipulates that the shop will earn a
15% commission on each salmon sold. Joe’s is responsible for purchasing any fish that
remain unsold at the end of a three-day period.
Required: During the three-day period, Joe’s Fish Shop was able to sell 88 of the 100
salmon. How much revenue should Holmgren recognize with respect to this transaction?
291. Colombo Coffee sells gift cards that can be used at its 55 branches. During 2015,
customers purchased $25,000 of gift cards, of which $3,000 were redeemed during 2016. It is
estimated that a balance of $1,500 of cards sold in 2015 remains unused as of the end of
2016, and Colombo determines that this amount will never be redeemed, based on historical
experience. During 2016, Colombo further sold $32,000 of gift cards, of which $26,000 were
redeemed and $6,000 remain unused but may be used by customer in 2017.
Required: How much gift card revenue should Colombo recognize in 2016?
292. Moretti Department Store sells gift cards that expire three years from the date of
purchase. During 2014, Moretti sold $50,000 of gift cards, of which $1,500 were redeemed
during 2016. At the end of 2016, it is estimated that approximately $800 of the 2014 balance
remains unused, and Moretti concludes that it will never be redeemed. Moretti sold another
$55,000 of gift cards in 2015, of which $22,000 were redeemed in 2016, and $60,000 of gift
cards in 2016, of which $40,000 were redeemed in 2016.
Required: How much revenue with respect to gift cards should Moretti recognize in 2016?
293. Beck Construction Company began work on a new building project on January 1, 2015.
The project is to be completed by December 31, 2017, for a fixed price of $108 million. The
following are the actual costs incurred and estimates of remaining costs to complete the
project that were made by Beck’s accounting staff:
Years
Actual costs incurred in each year
Estimated remaining costs to complete the
project (measured at Dec. 31 of each year)
2015
$30 million
$60 million
2016
$45 million
$45 million
2017
$35 million
$ 0
Required: What amount of gross profit (or loss) would Beck record on this project in each year,
assuming that Beck recognizes revenue for this project upon completion of the project? Place
answers in the spaces provided below and show supporting computations.
Years
Gross Profit (or Loss) recognized
Supporting computations
2015
2016
2017
recognized
($2 million) – ($12 million) = $10 million in 2017
294. Beck Construction Company began work on a new building project on January 1, 2015.
The project is to be completed by December 31, 2017, for a fixed price of $108 million. The
following are the actual costs incurred and estimates of remaining costs to complete the
project that were made by Beck’s accounting staff:
Years
Actual costs incurred in each year
Estimated remaining costs to complete the
project (measured at Dec. 31 of each year)
2015
$30 million
$60 million
2016
$45 million
$45 million
2017
$35 million
$ 0
Required: What amount of gross profit (or loss) would Beck record on this project in each year,
assuming that Beck recognizes revenue for this project over time according to percentage of
completion? Place answers in the spaces provided below and show supporting computations.
Years
Gross Profit (or Loss) recognized
Supporting computations
2015
2016
2017
Years
Gross Profit (or Loss) recognized
Supporting computations
2015
$6 million
($108 – 90) x ($30 /$90) = $6 million
($12 million) – $6 million = ($18 million) in 2016
Use the following to answer questions 295-298:
Beavis Construction Company was the low bidder on a construction project to build an earthen dam for
$1,800,000. The project was begun in 2015 and completed in 2016. Cost and other data are presented
below:
2015
2016
Costs incurred during the year
$ 450,000
$1,100,000
Estimated costs to complete
1,050,000
0
Billings during the year
400,000
1,400,000
Cash collections during the year
300,000
1,500,000
295. Assume that Beavis recognizes revenue on this contract over time according to
percentage of completion. Required: Compute the amount of gross profit recognized during
2015 and 2016.
Contract price
Actual costs to date
Estimated costs to complete
Total estimated project costs
Estimated total gross profit
Percentage of completion:
Gross profit recognized
Contract price
$1,800,000
Total cost
Total gross profit
Recognized in 2015
Recognized in 2016
296. Assume that Beavis recognizes revenue on this contract over time according to
percentage of completion.
Required: Prepare all journal entries to record costs, billings, collections, and profit recognition.
Construction in progress
450,000
Accounts receivable
400,000
297. Assume that Beavis recognizes revenue upon completion of the project.
Required: Compute the amount of gross profit recognized during 2015 and 2016.
298. Assume that Beavis recognizes revenue upon completion of the project.
Required: Prepare all journal entries to record costs, billings, collections, and profit
recognition.
Construction in progress
Accounts receivable
Cash
Construction in progress
Accounts receivable
Cash
Construction in progress
Cost of construction
Revenue from long-term contracts
Billings on construction contract
299. In 2016, Chicago Construction began work on a three-year construction project to build a
new performing arts complex (the PAC). The PAC contract price is $150 million. Chicago
recognizes revenue on this contract over time according to percentage of completion. At the
end of 2016, the following financial statement information indicates the results to date for the
PAC (missing items denoted by letter):
INCOME STATEMENT:
Revenue
$ w million
Cost of construction
35 million
Gross profit
$ x million
BALANCE SHEET:
Accounts receivable from construction billings
$14 million
Construction in progress
$50 million
Less: Billings on construction
($y million)
Net billings in excess of construction in progress
$z million
CASH FLOW STATEMENT
Cash collections
$46 million
Required: Compute the following, placing your answer in the spaces provided and showing
supporting computations below:
Item to compute
Answer
Total revenue recognized during 2016 (w):
Gross profit recognized during 2016 (x):
Billings on construction (y):
Net billings in excess of construction in progress (z):
Calculate the percentage of PAC that was completed during 2016:
Item to compute
Answer
CIP contains cost + gross profit = revenue, so w = $50
Gross profit recognized during 2016 (x): $50 – $35 = $15
$ 15 million
Billings on construction (y): $14 + $46 = $60
$ 60 million
Net billings in excess of construction in progress (z): Billings of $60 – CIP of $50
$10 million
50/150 = 33.33%
300. In 2016, KP Building Inc. began work on a four-year construction project (called Cincy
One). The contract price is $300 million. KP recognizes revenue on this contract over time
according to percentage of completion. At the end of 2016, the following financial statement
information indicates the results to date for Cincy One:
INCOME STATEMENT:
Gross profit (before-taxes) recognized in 2016
$22 million
BALANCE SHEET:
Accounts receivable from construction billings
$10 million
Construction in progress
$66 million
Less: Billings on construction
($75 million)
Net billings in excess of construction in progress
$9 million
Required: Compute the following, placing your answer in the spaces provided and showing
supporting computations below.
Item to compute
Answer
Cash collected by KP on Cincy One during 2016
Actual costs incurred by KP on Cincy One during 2016
At 12/31/2016, the estimated remaining costs to complete Cincy One
The percentage of Cincy One that was completed during 2016
Item to compute
Answer
Cash collected by KP on Cincy One during 2016. ($75 billings – $10 A/R)
$ 65 million
Actual costs incurred by KP on Cincy One during 2016 ($66 CIP – $22 gross profit)
$ 44 million
(44/{44 + x})(300 – {44 + x}) = 22; x = 156
The percentage of Cincy One that was completed during 2016
100 x (44 / {44 + 156})
Use the following to answer questions 301-303:
McCombs Contractors received a contract to construct a mental health facility for $2,500,000.
Construction was begun in 2015 and completed in 2016. Cost and other data are presented below:
2015
2016
Costs incurred during the year
$1,500,000
$1,300,000
Estimated costs to complete
1,200,000
0
Billings during the year
1,200,000
1,300,000
Cash collections during the year
1,000,000
1,500,000
301. Assume that McCombs recognizes revenue on this contract over time according to
percentage of completion.
Required: Compute the amount of gross profit recognized during 2015 and 2016.
Answer:
302. Assume that McCombs recognizes revenue on this contract over time according to
percentage of completion.
Required: Prepare all journal entries to record costs, billings, collections, and profit recognition.
Round your answers to the nearest whole dollar.
303. Assume that McCombs recognizes revenue upon project completion.
Required: Compute the amount of gross profit recognized by McCombs during 2015 and 2016.
Use the following to answer questions 304-311:
Missoula Inc. reported the following selected financial statement data:
Dec 31, 2015
Dec 31, 2016
Cash
$ 30,000
$ 32,000
Accounts receivable (net)
48,000
52,000
Inventory
68,000
72,000
Plant assets (net)
210,000
218,000
Total assets
405,000
395,000
Liabilities
145,000
145,000
Shareholders’ equity
260,000
250,000
Net sales
340,000
400,000
Cost of goods sold
220,000
280,000
Net income
20,000
25,000
304. Required: Compute the receivables turnover ratio for 2016.
305. Required: Compute the inventory turnover ratio for 2016.
306. Required: Compute the asset turnover ratio for 2016.
307. Required: Compute the average collection period (rounded to one decimal place) for
2016.
308. Required: Compute the average days in inventory for 2016.
309. Required: Compute the profit margin on sales for 2016.
310. Required: Compute the return on assets for 2016.
311. Required: Compute the return on shareholders’ equity for 2016. Round your answer to
one decimal place, e.g., .1234 as 12.3%.
Use the following to answer questions 312-319:
The following partial income statement and balance sheet information (in $ millions) comes from the
Annual Report of Saratoga Springs Co. for the year ending 12/31/2016:
Year ended 12/31/2016
Net sales
7,949
Total operating revenue
7,949
Cost of goods sold
4,767
Sales, general & administrative
1,909
Interest expense
416
Income before tax
667
Net income
458
12/31/2016
12/31/2015
Cash and cash equivalents
975
64
Receivables, net
1,010
664
Inventories
1,055
519
Land, buildings and equipment at cost, net
2,764
1,501
Total assets
16,540
5,091
Accounts payable
1,217
619
Total current liabilities
5,747
2,209
Long-term debt
5,591
2,221
Deferred income taxes
407
423
Total liabilities
12,811
5,039
Minority interest
153
0
Retained earnings
2,568
2,468
Total stockholders’ equity
3,576
52
Required: Compute the following amounts for Saratoga Springs Co.
312. Its profit margin on sales for 2016. Round your answer to one decimal place, e.g., .1234
as 12.3%.
313. Its receivables turnover ratio for 2016. Round your answer to one decimal place.
314. Its inventory turnover ratio for 2016. Round your answer to one decimal place.
315. Its asset turnover ratio for 2016. Round your answer to two decimal places.
316. Its average collection period for 2016. Round your final answer to one decimal place.
317. Its average days in inventory for 2016. Round your final answer to one decimal place.
318. Its return on assets for 2016. Round your answer to one decimal place, e.g., .1234 as
12.3%.
319. Its return on stockholders’ equity for 2016. Round your answer to one decimal place, e.g.,
.1234 as 12.3%.
320. The following information is provided in the 2016 annual report to shareholders of paris–
perfume.com:
December 31, 2016
December 31, 2015
Accounts receivable
(E)
$100 million
Inventory
$70 million
$30 million
Other assets
(G)
$170 million
Total assets
(A)
$300 million
Total liabilities
(C)
$100 million
Total stockholders’ equity
(B)
$200 million
For the year ended Dec. 31, 2016
Net sales
(D)
Cost of goods sold
(F)
Net income
$40 million
Return on assets
10%
Receivables turnover
8.0
Inventory turnover
12.0
Asset turnover
2.5
Return on stockholders’ equity
20%
Profit margin on sales
4%
Required: Compute the missing amount in the paris-perfume.com financial statement
information, and indicate your answers by marking them (A) to (G).
321. The following information is provided in the 2016 annual report to shareholders of The
BizStore:
December 31, 2016
December 31, 2015
Accounts receivable
(Y)
$6 million
Inventory
$25 million
$20 million
Total assets
$250 million
(X)
Total stockholders’ equity
(W)
$130 million
Net sales
Cost of Goods Sold
$115 million
(Z)
Net income
(U)
Average collection period
22.2 days
Average days in inventory
104 days
Equity multiplier
1.9
Return on stockholders’ equity
16.0%
Profit margin on sales
17.4%
ROA
(V)
Required: Compute U–Z in the table above.